Trading Psychology: Trading Strategies, Styles and Personality

April 30, 2022

Everyone who invests their money hopes that they are successful. However, unless you are just lucky, you need to do more than hope to make yourself succeed. Investing takes time, lots of energy, and dynamite planning.

A trading strategy is a specific plan that you follow when buying and selling stocks. A trading style is a more of a general approach that you take to investing. Your trading style will be influenced by your personality, goals, and risk tolerance. Different investors will have different styles, but all can be successful if they find the right strategy for themselves.

As no two people are the same, you will likely have differing choices and opinions regarding the best trading method. This means that your brother may enjoy day trading and be very successful at it while you prefer only to invest in long term trades. You may enjoy holding a position for more than a year while your brother holds their position for less than a minute. Both strategies are just fine, as long as they are profitable.

Let’s explore the most used trading strategies and styles by traders in the stock market.

1- Day trading

Day trading is a popular style of investing that involves buying and selling stocks within the same day. This approach requires active monitoring of the market and quick decision-making. Day traders typically don't hold onto their investments for very long; they may only hold onto a stock for a few minutes or hours before selling it. This type of investing personality matches well with people who are comfortable with risk and have the ability to make quick decisions. Day trading can be a lucrative investment strategy, but it's important to understand the risks before getting started.

2- Swing Trading

Swing trading is a style of investing where you buy and sell stocks over a period of days or weeks. This is a less active approach than day trading, and it allows you to take a more long-term view of the market. Swing traders typically hold onto their investments for longer than day traders; they may hold a stock for days, weeks, or even months. This type of trader personality will be a match for someone who is confident enough to hold their trade past closing bell and potentially into the following days or weeks. This strategy requires more patience than day trading, as well as strong analytical skills, including keeping up to date on economic trends and understanding how the market will be influenced by these trends.

3- Scalping

Scalping is a style of investing where you take small profits on a regular basis. This is a more active approach, as you may need to buy and sell stocks more frequently in order to take advantage of market trends. When a scalper gets on the wrong side of a trade, they typically hold onto their investment for the short term, as they believe that the stock’s price will eventually reverse. This type of trader needs to be very decisive, good with reading technical analysis, and very confident in interpreting market trends. They should have a great deal of attention to detail as well as an ability to remain calm as they take advantage of volatility and price fluctuation.

4- Position Trading

Position trading is a style of investing where you take a long-term view of the market and hold onto your investments for months or even years. This can be a more patient approach, but it can also be a profitable one if you choose your stocks wisely. Position traders typically don’t pay much attention to short-term market movements; they focus on the overall trend of the market. To be a position trader, you should again have a great deal of confidence in your choices. This individual will not make choices on a whim, rather they will be knowledgeable about their investments. They will follow along with their companies’ reviewing earnings reports and media surrounding their specific choices to make sure their investments are continuing to grow.

5- Value investing

Value investing is a style of investing where you look for stocks that are undervalued by the market. This can be a tedious strategy, but it can also be a profitable one if you choose your stocks wisely. Value investors typically hold onto their investments for the long term, waiting for the market to recognize the true value of the stock. It can take a great deal of time to identify a stock that is undervalued. A matching personality for this type of investor would be an induvial that is very patient and has tolerance to wait for an extended length of time to gain the rightful value of the stock.  

6- Growth investing

Growth investing is a style of investing where you look for stocks that have the potential to grow in value. This can be a more active approach, as you may buy and sell stocks more frequently in order to take advantage of market trends. You usually have a high percentage of profitability as you are looking for stock growth.  Growth investors hold onto their investments for an unspecified time horizon. When the investor believes the stock has met its greatest yield, this is the time they will sell.  This type of investor will be knowledgeable about their decisions and have a concrete vision for their success. This type of investing will match a personality that is very organized and goal driven.

7- Momentum investing

Momentum investing is a style of investing where you look for stocks that are experiencing a surge in price. This can be a more active approach, as you may buy and sell stocks more frequently in order to take advantage of market trends. Momentum investors typically hold onto their investments for the short term, as they believe that the stock’s price will eventually plateau. They will ride the momentum for success. This personality type will have a strength in reading technical analysis. They will need to be skilled at understanding when the momentum is ending. This will require a calm personality that is able to go with the flow. This investor would need to be resilient if they misjudge the entry or exit. They will need to be able to tolerate a high level of risk.

As you can see the seven trading strategies we have looked at are a good starting point for understanding how your personal preferences might impact your trading style. It’s important to remember that everyone is different and what works for one trader may not work for another. Understand yourself so that you are able to choose the strategy that suits you best. Remember, it’s important to be very comfortable with choices if you want to succeed in the markets. Start small and grow from there – success awaits those who take action!